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The GAO is urging the IRS to improve collection of taxes from Medicaid providers after the federal watchdog found that about 7,000 Medicaid providers who received about $6.6 billion in Medicaid reimbursements during 2009 – including funds from the American Recovery and Reinvestment Act (ARRA) – owed the government approximately $791 million in unpaid federal taxes from calendar year 2009 or earlier.
The Medicaid providers are from three states selected for investigation: Florida, New York and Texas. The providers represent about 5.6 percent of the Medicaid providers reimbursed by the selected states during 2009.
The selected states were among those that received the largest portion of ARRA Medicaid funding. To provide examples of Medicaid providers who have sizeable unpaid federal taxes, GAO conducted a detailed review of 40 Medicaid providers from the three states that had more than $100,000 of federal tax debt.
GAO’s sample of three states and 40 cases cannot be generalized to all states and all Medicaid providers, investigators stated in their report.
The 40 Medicaid providers GAO reviewed received a total of $235 million in Medicaid reimbursements (including ARRA funds) in 2009 and had unpaid federal taxes of about $26 million through 2010. The amount of unpaid federal taxes ranged from approximately $100,000 to more than $6 million. In addition, IRS records indicate that providers in two of GAO’s cases are currently, or have previously been, under criminal investigation. For example, in one case a provider was caught participating in a medical billing fraud.
IRS may levy, or seize, a taxpayer’s property to satisfy a tax debt and, in some instances, is authorized to use an automated process to continuously levy federal payments made to delinquent taxpayers. Medicaid reimbursements have never been continuously levied using this provision of the law because the IRS determined that these reimbursements do not qualify as federal payments.
However, if such a process could be used, GAO estimates that IRS could have collected between $22 million and $330 million in the selected states in 2009. State officials GAO investigators spoke with expressed concerns about implementing continuous levies, given the challenges they encounter with processing onetime IRS levies. For example, states have had difficulty reaching IRS revenue officers and problems with IRS sending levies to the wrong address.
The amount of unpaid federal taxes GAO identified is likely understated, GAO notes, because IRS taxpayer data reflect only the amount of unpaid taxes either reported on a tax return or assessed by IRS through enforcement; it does not include entities that did not file tax returns or underreported their income.